Activist views of corporate vulnerability are changing
Factors influencing the choice of activist targets are shifting in response to the crisis. For example, focus on share price underperformance relative to a target’s peers declined in importance with activists following the downturn, moving from 60% to 48%. And executive compensation misaligned with company performance significantly gained in importance with 72% of activists, up from 24% pre-crisis.
This reinforces the fact that the fundamentals of the business, rather than market reactions, are the activists’ most important considerations.
As expected, slowing revenue growth and declines in relative operating margins maintained its pre-eminence, rising modestly from 72% pre-crisis to 76% following the onset of the crisis. Large cash balances and inefficient balance sheets declined as a factor, moving from 52% pre-crisis to 36%. And those citing a change of terms for existing M&A situations as a factor grew from 60% to 92%, perhaps driven by market volatility and the need for greater flexibility in pre-agreed deal terms.